Extended Trading Hours Is a Blessing or Curse to Indian Stock Market

Mr. Shyam | Tuesday, November 24,2009, 08:27 PM

India is one of the favorite places for foreign investor to place their money. It is not only the money that trades in stock market but it is an indispensible amount which we can’t even think of neglecting. India has got a growing economy and is a safe heaven. The economy has successfully overcome the affects of the economic downturn. Recently Securities and Exchange Board of India (SEBI) has proposed new trading timings for Indian stock markets. In this article we will discuss the relevance of this proposal.

A Review on Increased trading hours

Trading in Indian stock markets starts at 9:55 am and goes on till 3:30 pm, it goes on for around five and half hours. SEBI the regulator of Indian securities market has come up with new timings for stock markets. According to the new time table the markets will start trading from 9 am and will go on till 5 pm. SEBI has said that the new timings will be implemented only after consulting the stock exchanges and stock brokers. SEBI has also placed two conditions before stock exchanges such as;

Efficient risk management system

Infrastructure commensurate

Stock markets should have efficient risk management system and infrastructure commensurate. Risk management system is an integral part for carrying out efficient clearing and settlement system. It contains some of the risk containment measures like capital adequacy requirements of members, monitoring of member performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement from trading when limits are breached etc. In India NSE was the first one to adapt this system). With the increase in trading hours trading activities will increase and it means the banks and financial institutions have to increase their working hours. The infrastructure that we have now has to be improved.

TRADING Hours (Local trading hours (am to pm)

Country

Cash

Futures & Options

New York

9:30 to 4:00

6.00 to 5.00

Singapore

9:00 to 5:00

9:00 to 5:00

Tokyo

9:00 to 2:00

9:00 to 7:00

London

8:00 to 4:20

8:00 to 9:00

India ( as of now)

9:55 to 3:30

9:55 to 3:30

India (as proposed by SEBI)

9:00 to 5:00

9:00 to 5:00

Reasons supporting increase in trading hours

Some of the reasons as stated by SEBI supporting the increase in trading hours are;

The events occurring have their effects on the stock market and events happening on foreign land can have a bearing on Indian stock market. It is done so as to align Indian markets with other Asian markets.

With the increased trading hours investors can assimilate information and take the investing decision accordingly.

The volatility, market efficiency stabilizes with the increase in trading hours.

Things to be considered before adapting the changes

Before any stock exchange decides to adapt the new timings some of the things it has to consider are;

It has to update the volatility. Volatility is one of the measures taken for risk management. As of now it is calculated five times during trading for a day.

Stock exchanges can decide upon having multiple trading sessions

SEBI has said that the technology used by brokerages may need up gradation

The timings are increased and hence there will be variation in volatility. If the affect is adverse then the traders may need to put up higher margins.

Benefits of Increased Trading Hours

There will be increase in the intraday trading.

Trading can happen in co-ordination with many of the stock markets of the world.

Increase in the volumes of trading. Brokerage charges will also increase and hence the government revenues also increase.

Retail investors will get sufficient time to think on their strategies. Not only retail investors even the FII’s can react to the current global events.

Most of the Asian markets open before BSE & NSE and they are able to attract some of the foreign investment. Now with the Indian markets opening early it is expected that they will be able to attract the investors.

SGX Nifty is NSE Nifty which is traded at stock market of Singapore ie SGX and it opens two hours earlier to Indian market as of now. As a result of this the volumes had reduced in NSE.

Indian derivatives are listed and traded in many markets outside India, so with the increase of trading hours will help fair price discovery for them.

Stock market reacts to the breaking or the current news and based upon the news it changes. With the increase of trading hours more time is provided to the market which may take either way go up or go down.

One more advantage of increased trading is that there will be increased viewership and hence increase in advertisement.

Previously trading began at 9:55 am and went on till 3:30 without any break in-between. With the increase of trading hours the traders can take a break in-between and reform the strategies.

Disadvantages of Increased Trading Hours

The analysts will have to improve their efficiency and will have to frame out as to what will be the behavior of the market with the increase in the trading hours.

There will be increased pressure on the traders including FII’s, banks, institutions etc.

When there is increase in the working hours there will also be increase in the stress levels and hence brokerage charges or commission which will lead to increase in the overall operational cost.

The stock markets don’t need any improvement in infrastructure if they adhere to new timings it is the brokerage houses, brokers, banks. Institutions who will have to improve the infrastructure, hire more men to handle the process.

The markets of other countries are also trading for 5 to 6 hours but they have an hour lunch break in-between so that brokers can rethink on their strategies whereas no such thing has been proposed by SEBI.

Whatever may be the reason but this directive by SEBI has received a mixed response from the stock market neither everyone is happy nor everyone is sad. The brokers and the retail investors are worried about the price stability and many other factors. However if the brokers it’s up to the stock market to decide the new timings. If everything goes as planned then there will be increase in volumes, more intraday trading, and more inflow of capital from foreign investors, this will help to redirect more flow of money into the financial system.

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